BAKU, Azerbaijan, March 23
By Leman Zeynalova – Trend:
Coal is a fuel that may come out stronger through the current crisis, Trend reports citing Rystad Energy, an independent energy research and business intelligence company.
The price of coal was already depressed before the corona virus crisis, and the demand curtailment in China during the lockdowns was accompanied by a domestic production drop, balancing the market. Oil, which is used as a fuel in coal mining, has grown cheaper and is seen by Rystad Energy as reducing coal output costs by a few dollars per ton.
“With ARA prices already so low, any cost decrease will potentially give struggling producers selling to Europe a little breathing room, rather than allowing prices to move down any further,” says Steve Hulton, Rystad Energy’s Head of Global coal research.
“The large falls in the currency of the major coal exporting countries like Australia and Russia is a significant, but often overlooked factor with regards to coal prices and margins. In mid-March, the Australian dollar hit a 17-year low as international investors sought the traditional safety of US dollars; the Russian ruble has also reached new record lows due to the collapsing oil price,” said the company.
International coal trades are priced in US dollars, whereas the majority of production costs are generally denominated in local currency terms, according to Rystad Energy.
“Therefore, a weaker exchange rate versus the US dollar usually means higher local currency revenues (or lower costs when converted to US dollars).”
“Either way, the higher sales margin gives producers maneuverability to accept lower US dollar coal prices if needed,”says Hulton.
However, foreign exchange movements won’t help any US-based coal producers, and further export price weakness (plus ongoing local demand destruction due to gas competition) will only serve to hasten their demise.
A possible outcome of the Covid-19 crisis could be an unexpected subtle shift in public opinion and policy regarding the speed of transition towards a low carbon power generating future, according to Rystad Energy.
“In a post-pandemic world coal, while having lots of problems, is considered to be a cheap and reliable source of energy to rebuild the economy. Also, in economies struggling to bounce back, there may be less scope for absorbing the unemployment associated with the end of coal mining and power generation. These factors could potentially lead to a slowing of the rate of the energy transition.”
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